Hello. File is in inches, minimum title block letter are around 2.3mm which is a visible size (minimum visibility around 1.5 mm for a very good sight). Layout page size is 17x11 inches approx A3 size page. Put short, layout print should be readable.
About showing model space in paper space, i have three suggestions:
1) you should use "annotative text if written in model space (auto sizes to layout space but may end up readable but a disaster of proportions and text placing in paper space.
2) I strongly suggest all text be added to paper space including dimensions, this way you have perfect control over size. )
3) If model space must have lots of text or letters, then put your model space text in a size according to paper space or scale your entire drawing in model space.